Fannie Mae Loan Limits to Remain Unchanged at Beginning of 2014

The Federal Housing Finance Agency will wait until after the beginning of the new year before reducing the size of mortgages that U.S--owned Fannie Mae and Freddie Mac can buy, the agency’s acting director said.

The mortgage industry needs time to adjust to new regulations governing lending that are set to take effect in January, Edward J. DeMarco said today during a briefing with reporters.

The agency, which regulates Fannie Mae and Freddie Mac (FMCC), could have more to say about potential decreases when it issues its annual statement on loan limits in November and will give at least six months’ notice before taking any action, he said.

“Gradual reductions in the maximum loan size is consistent with the strategic goal we’ve set forth in the last year about gradually contracting the enterprises’ footprint in the marketplace and gradually reducing the American taxpayers’ exposure,” DeMarco said.

Government-owned Fannie Mae (FNMA) and Freddie Mac, which back about two-thirds of new home loans, currently buy mortgages of as much as $417,000 in most areas and of as much as $625,500 in costly housing markets. They package the mortgages into securities on which they guarantee payments of principal and interest.

Lowering loan limits could make borrowing more costly for some homebuyers. Mortgages eligible for purchase by Fannie Mae and Freddie Mac, known as conforming loans, are generally less expensive than larger loans known as jumbos because the government would absorb the cost of default.

Reducing Footprint

Any eventual reduction in loan limits would apply to both the base limit and the higher limit in expensive markets, DeMarco said.

President Barack Obama called for a decrease in loan limits in August, citing the government’s outsized footprint in the housing market.

DeMarco said at the time that the agency was considering reductions and would provide advance notice if it intended to put them into effect on Jan. 1, the date when limit changes historically have gone into effect.

Since then, trade groups including the National Organization of Realtors, the National Association of Homebuilders, and the Mortgage Bankers Association have been asking that the limits be kept at current levels, at least until there’s time to assess the impact of new regulations on the market.

“I’ve concluded that we needed more time and the industry has an awful lot going on on Jan. 1,” DeMarco said. “The better course was to wait and provide a sense that there would be an ample amount of time for market participants to adjust.”

To contact the reporter on this story: Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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